UPDATED -- Due to litigation and upcoming settlements, one trucking operation is abandoning its owner-operator business model in California.
Hub Group Trucking, the drayage operation of the logistics provider The Hub Group, and formerly known as Comtrak Logistics, says it will convert these 350 truckers to company drivers in the next two weeks, according to a statement sent to customers and obtained by the Journal of Commerce for a story published Tuesday morning.
“It appears that the legal climate in California is becoming unfavorable to the common trucking industry practice of using independent truck drivers,” said Dan Burke, president of Hub Group Trucking, in the statement.
Another, and far more likely reason for the change in driver classification is due lawsuits, including one that sought class action certification on behalf of present and former California-based truck drivers for Hub Group Trucking, who were classified as independent contractors from January 2009 to the present.
The complaint alleges Hub Group Trucking misclassified these truck drivers as independent contractors rather than employees. A second complaint alleging substantially similar claims was filed in July, but the company says it has not been served with a copy of that complaint.
Both lawsuits were disclosed by the Hub Group in a disclosure filed later on Tuesday with the Securities and Exchange Commission.
“Because lawsuits are expensive, time-consuming and could interrupt our business operations, we have decided to make settlement offers to individual drivers with respect to the claims alleged in the lawsuits, without admitting liability,” Hub Group said in the filings. “The company estimates that the total settlement amount, if all drivers accept the offers, is approximately $9.5 million. To date, a substantial number of the independent contractors have decided to accept the settlement offer.”
This change in status for Hub’s California based drivers also comes as there are an increasing number of lawsuits against other companies in the state and elsewhere, claiming some truckers are wrongly classified as independent contractors/owner operators by trucking fleets and should instead be regarded as company drivers.
Also, a federal court in late August ruled two classes of drivers working for FedEx Ground were misclassified as independent contractors, a decision that could cost the company millions of dollars.
Hub Group Trucking has reportedly already met with drivers about the change in status, while Burke defended the company’s classification of its drivers as independent contractors, adding, “To avoid potential issues with the usage of owner/operators as the California legal environment changes and because we need to manage our business for the long-term, we decided to change our model and build around employee drivers.”
Update adds SEC disclosure information.